Exercise 7-06 aThe following control procedures are used in Bunny’s Boutique Shoppe for cash disbursements.(a) For each procedure, explain the weakness in internal control and identify the internal control principle that is violated.Procedure Weakness Principle Violated1. Each week, 100 company checks are left in an unmarked envelope on a shelf behind the cash register. select a weakness The bank reconciliation is not independently preparedUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than onceThe approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesChecks are not stored in a secure area select a principle violated Physical controlsSegregation of dutiesDocumentation proceduresIndependent internal verificationEstablishment of responsibilityHuman resource controls2. The store manager personally approves all payments before she signs and issues checks. select a weakness The approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesUnauthorized employees making purchasesChecks are not stored in a secure areaFiling does not prevent a bill from being paid more than onceThe bank reconciliation is not independently prepared select a principle violated Segregation of dutiesIndependent internal verificationEstablishment of responsibilityPhysical controlsHuman resource controlsDocumentation procedures3 (i). The store purchases used goods for resale from people that bring items to the store. Since that can occur anytime that the store is open, all employees are authorized to purchase goods for resale by disbursing cash from the register. select a weakness The bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesThe approval and payment of bills is done by the same individualChecks are not stored in a secure areaUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than once select a principle violated Independent internal verificationEstablishment of responsibilityHuman resource controlsPhysical controlsDocumentation proceduresSegregation of duties3 (ii). The purchase is documented by having the store employee write on a piece of paper a description of the item that was purchased and the amount that was paid. The employee then signs the paper and puts it in the register. select a weakness The bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure areaThe approval and payment of bills is done by the same individualUnauthorized employees making purchases select a principle violated Physical controlsHuman resource controlsSegregation of dutiesDocumentation proceduresIndependent internal verificationEstablishment of responsibility4. After payment, bills are “filed” in a paid invoice folder. select a weakness The bank reconciliation is not independently preparedThe approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure area select a principle violated Physical controlsSegregation of dutiesEstablishment of responsibilityHuman resource controlsIndependent internal verificationDocumentation procedures5. The company accountant who records cash transactions also prepares the bank reconciliation and reports any discrepancies to the owner. select a weakness Unauthorized employees making purchasesThe bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure areaThe approval and payment of bills is done by the same individual select a principle violated

Question
Asked Oct 21, 2019

Exercise 7-06 a

The following control procedures are used in Bunny’s Boutique Shoppe for cash disbursements.

(a) For each procedure, explain the weakness in internal control and identify the internal control principle that is violated.

Procedure
 
Weakness
 
Principle Violated
1.
 
Each week, 100 company checks are left in an unmarked envelope on a shelf behind the cash register.
  select a weakness
 The bank reconciliation is not independently preparedUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than onceThe approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesChecks are not stored in a secure area
  select a principle violated
 Physical controlsSegregation of dutiesDocumentation proceduresIndependent internal verificationEstablishment of responsibilityHuman resource controls
2.
 
The store manager personally approves all payments before she signs and issues checks.
  select a weakness
 The approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesUnauthorized employees making purchasesChecks are not stored in a secure areaFiling does not prevent a bill from being paid more than onceThe bank reconciliation is not independently prepared
  select a principle violated
 Segregation of dutiesIndependent internal verificationEstablishment of responsibilityPhysical controlsHuman resource controlsDocumentation procedures
3 (i).
 
The store purchases used goods for resale from people that bring items to the store. Since that can occur anytime that the store is open, all employees are authorized to purchase goods for resale by disbursing cash from the register.
  select a weakness
 The bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesThe approval and payment of bills is done by the same individualChecks are not stored in a secure areaUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than once
  select a principle violated
 Independent internal verificationEstablishment of responsibilityHuman resource controlsPhysical controlsDocumentation proceduresSegregation of duties
3 (ii).
 
The purchase is documented by having the store employee write on a piece of paper a description of the item that was purchased and the amount that was paid. The employee then signs the paper and puts it in the register.
  select a weakness
 The bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure areaThe approval and payment of bills is done by the same individualUnauthorized employees making purchases
  select a principle violated
 Physical controlsHuman resource controlsSegregation of dutiesDocumentation proceduresIndependent internal verificationEstablishment of responsibility
4.
 
After payment, bills are “filed” in a paid invoice folder.
  select a weakness
 The bank reconciliation is not independently preparedThe approval and payment of bills is done by the same individualUse of cash instead of checks; no prenumbered invoicesUnauthorized employees making purchasesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure area
  select a principle violated
 Physical controlsSegregation of dutiesEstablishment of responsibilityHuman resource controlsIndependent internal verificationDocumentation procedures
5.
 
The company accountant who records cash transactions also prepares the bank reconciliation and reports any discrepancies to the owner.
  select a weakness
 Unauthorized employees making purchasesThe bank reconciliation is not independently preparedUse of cash instead of checks; no prenumbered invoicesFiling does not prevent a bill from being paid more than onceChecks are not stored in a secure areaThe approval and payment of bills is done by the same individual
  select a principle violated
 
check_circleExpert Solution
Step 1
Principle Violated
Physical controls
Procedure
Weakness
1. Each week, 100 company checks
are left in an unmarked envelope on
a shelf behind the cash register
2. The store manager personally The approval and payment of Segregation of duties
approves all payments before she bills is done by the same
signs and issues checks
Checks are not stored in a
secure area
individual
employees Establishment
responsibility
Unauthorized
of
3 (. The store purchases used goods making purchases
for resale from people that bring
items to the store. Since that can
The approval and payment of
bills is done by the same
individual
intemal
Independent
verification
occur anytime that the store is open
all employees are authorized to
purchase goods for resale by
disbursing cash from the register
Documentation
Use of cash instead of checks
procedures
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Principle Violated Physical controls Procedure Weakness 1. Each week, 100 company checks are left in an unmarked envelope on a shelf behind the cash register 2. The store manager personally The approval and payment of Segregation of duties approves all payments before she bills is done by the same signs and issues checks Checks are not stored in a secure area individual employees Establishment responsibility Unauthorized of 3 (. The store purchases used goods making purchases for resale from people that bring items to the store. Since that can The approval and payment of bills is done by the same individual intemal Independent verification occur anytime that the store is open all employees are authorized to purchase goods for resale by disbursing cash from the register Documentation Use of cash instead of checks procedures

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